Wednesday, May 4, 2016

Analysis of ProSiebenSat.1 2016

Business: A German media company with the core business of commercial sales on their TV stations. They are divided into three segments: Broadcasting German Speaking (four TV channels: SAT.1, ProSieben, kabel eins, and sixx), Content Production & Global Sales (international program production and distribution) and finally Digital & Adjacent (Online Video, Online Games, Ventures & Commerce and Music).

Active: Main activity areas are Germany, Austria and Switzerland but are present in 12 countries world wide and try to establish themselves more in English speaking areas with especially their online activities and content production.

The P/E of ProSiebenSat.1 is too high for me with 24.9 but the P/B is completely out of any reasonable range with 10.3 which gives a very, very, very clear no go from Graham. The earnings to sales are good with 12% and the ROE is excellent with over 40%. However the book to debt ratio is scary with 0.2 and kind of explains the high ROE. It should additionally be added the the debts are very real but the assets are to a VERY large extent intangible and if they were to write down some of that then we would quickly end up with negative book value!
In the last five years they have had a good yearly revenue growth rate of 3.4% which then gives us a motivated P/E of 12 to 15 which means that ProSiebenSat.1 is highly overvalued by the market.
They pay an excellent dividend in the size of 4.1% which however correspond to more than 100% of their earnings. They will/should not be able to keep it up and today the *** (add your own favourite word) are building up debt to pay out dividends.

Conclusion: Graham says no and I say *** NO! This company and its shareholders are living in a dream world that they hope will never end. In my opinion it should crash and burn and be kicked off DAX again. All the values... the P/E, P/B, ROE and dividend are all insane and not in a good way. I will not invest in this dream.